Frugality is not poverty: lessons in energy security

After much vacillation and prevarication, the government has finally done the inevitable—raised the price of petroleum products—by doing a little of everything. But the bottom-line is that even after the cut in customs tax, reduction in excise duty, a ‘modest’ increase in the cost of petrol, diesel and cooking gas for all and a further request to states to slash their taxes, the oil companies are still left with massive deficits in every litre or every cylinder sold. It is a job half done at a time when the burden of the task is spiralling.

Let us be clear; the cost of oil in the international market is expected not to decrease, but to increase further. The predictions are that it will reach us $200 a barrel in the next two years; it is already up 1000 times since a decade ago. There are many reasons for this. First, the world is learning that it has to ‘share’ the resources of the planet with the newer economies—China and India. Their demand is increasing, as it must, the supply is not increasing, as it cannot. It is now more or less clear that the world is nearing the end of the age of hydrocarbons. There is a squeeze on supply, partly because there is no new big finds of petroleum left and partly because what there is in the world is too risky to drill. The only hope is in the newer technologies for oil exploration, which will help the world go where it has never gone before. One thing is clear: it is the end of easy and cheap oil. Measures like sticking a band-aid will not work in this scenario; our actions to increase a little price or cut more taxes are futile, if not downright stupid. Instead, we need a strategy to cut our demand, by either increasing efficiency of every drop of oil or by substituting oil with other products. More importantly, we need to do this, when so little of India uses petroleum and so much of India still needs to increase its access to and use of energy.

This is what we need to discuss. Take the price of Liquid Petroleum Gas (lpg). The government has taken a meek step to increase its price (for a 14.5 kg cylinder) by Rs 50, when it really needed to increase it by nothing less than Rs 300 to meet costs. In other words, it continues to subsidise our cooking energy. But that is not new. The fact is that lpg has been promoted always by providing a subsidy on the cost of the gas or the cylinder it is bottled in. The problem today is that there are too many of us using the gas for the government to subsidise all. In other words, till only the rich used it, subsidy was all right, but now that more have become rich or the gas has reached the poor, the government can’t afford the bill. In this Socialism-Indian style, the rich will continue to be subsidised in the name of the poor.

At no time, do we discuss if we can indeed afford this fuel for cooking our food. Or ask what the cheaper options are, which can be afforded by all. Or debate if we should reduce our use of energy, so that all can share the subsidy. No, instead of all this, our economists are singing their favourite tune: increase prices or target subsidies, even as they know that we are deliberately doing everything to ensure that we cannot increase prices because the costs are unaffordable to the economy. In the current circumstance, the increase in the price of oil will be inflationary and hit the poor. There is no question about this. But if we want to change this, we will have to do things differently. For instance, the market dictum of organised retail is making sure we have to transport our commodities from longer and longer distances, so that any increase in the price of fuel hurts bad. Then we are making sure we promote the most inefficient of transport—road as against rail—so that this cost hurts even more.

The icing on the cake is that we cannot anymore ‘protect’ the fuel of the public and poor—diesel. This is because we have, through policy or the lack or it, wilfully allowed its use in private vehicles. Today, even a Mercedes-Benz runs on this fuel, on which the government itself says that it loses almost as much it does on kerosene—Rs 31.58 per litre it sells. In today’s situation, it cannot raise the price of diesel; so it will end up subsidising the cars of the rich. Then as the price differential between diesel and petrol increases, more car owners will switch to this fuel, on which the subsidy burden is the maximum. What a joke of a policy.

Clearly, the time has come when we must bite the bullet. We talk about public transport in our cities, but we end up taxing buses more than we tax cars. When I wrote to the finance minister asking for excise duty exemptions on public transport vehicles, he ensured that the cut in excise for small cars was brought at par with buses. There was no priority given to efficiency; no drive for affordability of mobility by all. I can go on and on with such instances.

It is time our prime minister walks the talk of energy security. He takes the bus or at the very least drops the number of cars in his cavalcade. It is time that our politicians make it clear: frugality is not about poverty.